Hi everyone. I’m Ravi SachDev from JPMorgan. I am very excited to have with us today one of the companies that we think is changing the healthcare system; Dave Kirchhoff and the Weight Watchers team.

I’ll turn it over to Dave in one second. Just as a reminder today, please turn off your cell phones and we will be doing questions-and-answers in the Sussex Room. Dave.

Dave Kirchhoff

Thanks Robbie. I trust that you all made responsible breakfast decisions today, but just know, this is Weight Watchers; we believe in empathy and support, so this is a no judgment zone.

This is our second year. Well, first standard, the regular forward-looking statements; you guys know the drill. This is our second year presenting at the JPMorgan Healthcare Conference. Last year in some respects was sort of our coming out if you will as a healthcare company and it is a logic that we are finding increasingly compelling.

But if I take a step back and I look at where we are as a company, as an organization, that has a very simple mission, which is to help people sustainably loose weight by adopting a healthier lifestyle. It is a company that for close to 50 years has traditionally been a direct-to-consumer company. It’s what we’re good at.

It is a business. We have a core face-to-face group support business that has tremendous brand recognition, high satisfaction, high recommendation rates, highly scaled and just the most unbelievable group of people, who are facilitating our group support meetings week-in and week-out, who are all former success -- who are all successful members themselves.

Over the past five years we also had the benefit of having what we believe was one of the best Internet businesses anywhere, which is Weight Watchers online; tremendous growth, tremendous margins, tremendous satisfaction. It’s been a big driver in terms of both, top and bottom line performance for the company and when I look at those things together from a traditional consumer product services company, this is an organization with tremendous prospects.

It is a company with an amazing business model, variable cost, high margin, negative working capital, extremely high return on invested capital, low CapEx, tremendous economics and increasingly it’s also becoming a company that we believe is going to be standing at the center of healthcare. It is undeniable, the need for addressing conditions like obesity and all the conditions that flow for that and we believe that we are uniquely suited to be the key frontline solution for addressing the obesity epidemic.

Speaking of obesity, many of you have probably seen some of these maps of the United States from the CDC, which shows the prevalence of obesity getting consistently worse across the country. I’ll point out the fact that in 1990 Colorado was the thinnest state in the Union, but I will also point out the fact that in 2010, that 1990 version of Colorado would have been the heaviest state. It speaks volumes as to how bad things have gotten over the past 20 years and our projections are it’s going to continue getting worse.

The Lancet, there was a publication in The Lancet just this past fall that suggested give or take for next 20 years, 10 or 20 years that obesity rates in the US could pass the 50% mark. It is a condition that affects countries around the globe. It’s not just an American phenomenon. There’s a lot of countries that are giving us a run for our money, including some unexpected places. You’ve heard the expression ‘French women don’t get fat,’ don’t believe it; they do.

The slope of the line is the same. It’s just the Y intercepts are different. If you look at average BMI across countries and the fact that we’re actually, what we believe is going to be a massive obesity epidemic in China, really goes to speak to this, that with affluence comes an obesogenic environment, with that comes obesity and with that comes disease.

Specifically if you look at the healthcare system as a whole, statistics that many of you are well familiar with, $2.5 trillion spent per year, 75% of which go to the treatment of chronic disease. Chronic disease in turn depending on condition is driven 50% to 80% by lifestyle.

So here is the difficult reality of the environment we’re in; is that you cannot have long term healthcare cost containment, without going about the business of getting Americans to make different choices in their daily life. This applies to smoking; it applies to the foot choices we make; it applies to how we exercise or not; it applies to a lot of difficult things that are difficult to address and I’ll talk about that in a little bit.

A specific example in terms of the impact of obesity that many of you are familiar with is going to be Type 2 diabetes. You recall that map of the United States. It shows prevalence of obesity in different states and the concentration in the South Eastern wall and below. If you look at this hot map from the CDC in terms of diabetes incidents rates, you can see that these things are obviously highly correlated.

Specifically you know when I think about diabetes, you know it’s give or take 10% to 11% of the adult population, so about 25 million people. The CDC came out with their forecast about a year ago that suggested by the year 2050, one out of every three Americans would be diabetic. Today this is a $180 billion year condition. Do the math and you can see the difficulty that is facing our healthcare system. You can begin to get an appreciation for why we’re seeing healthcare premiums for example in self insured companies increasing 8% a year over the past 10 years. You can see how we now have an entitlement system that is very much at risk.

One way to kind of dimensionalize this is that in actually pre diabetics there’s been a more recent forecast that it could be north of 70 million Americans are now pre diabetic. So as these folks get older, they will sadly be moving into this bucket of people who currently have diabetes. It is a significant issue.

To understand a problem with obesity, I think it’s helpful to just consider what happens over the course of ones life. So this graph, the way to interpret it is that what you see is age and then you see risk for diabetes. On the top dotted line you see someone who is obese, their relative risk and on the bottom you see someone who is at normal weight and what you have happening here is that its definitely worse, no matter what age you are, which is why we no longer call it adult onset diabetes, because yes, in fact kids can and do now get Type 2 diabetes, which is horrifying in it’s own way, but what you find with obesity is that the risk gets worse as you get older.

This is one of the challenges in terms of dealing with obesity is that the problems that come with it come later in life, so it eminently lends itself to procrastination. And so for this reason I often think of the problems like, the problems of the obesity epidemic as being a bit of a balloon payment. So think of it in terms of recycling renewable energy, you know pick your example. It’s easy to put off, but you keep putting it off and you end up with a healthcare system we have today.

The good news is, is that to affectively address this, you do not need to manufacture swimsuit models; that’s not what this is about. This is about helping people get to a 10% sustained weight loss. Doing so will reduce your risk of Type 2 diabetes by close to 60%. It is absolutely possible, but it is not easy. And I think part of the problem with obesity is the entire way we conceptualize addressing the issue. I think in many respects, in many different pockets of the population, including in the healthcare community it’s misunderstood and often wrong.

The thing about obesity is that it is a health issue that’s driven by lifestyle. It is a health issue that is affected by the choices we make in our kitchens, in our convenience stores, in our grocery stores, in restaurants, it’s about mindlessly easting, it’s about lots of things that are very difficult to address in a clinical environment.

If you think about what addressing obesity on a sustainable basis is, we use the words ‘adopting a healthy lifestyle,’ but let’s think about what that is. A healthy lifestyle is a compendium of healthy habits, such as always having a good healthy breakfast, which again I hope most of you did. But if you think about what a habit is, it is something that requires repetition for an extended period of time until it becomes second nature, that’s a habit. So establishing healthy habits and getting rid of not so healthy habits is difficult to do, period.

It is one of the reasons that if you think about obesity, it doesn’t have a cure per say. What I will tell people all the time is that if you have a weight issue, you will always have to be careful, period, it never goes away. And I think it’s important for us to understand that, because a lot of the mechanisms and there’s a ton of great research going on in terms of you know the hormones and our metabolism and what’s happening in our brain and everything else, but this is a difficult condition that lends itself to recidivism, that is difficult to address and requires a constant level of treatment, frankly over the majority of somebody’s life, but it can be dealt effectively if we have the right model.

Specifically, our framework for thinking about this, putting Weight Watchers aside for a second, is that how do you improve the odds of success in a given attempt for someone to loose weight, achieve the 10% weight loss and sustain it, how do we increase our odds; improve betting average, however you want to think about it.

One is, having incentives to get people more engaged. So in other words, making consumers, consumers of their healthcare. This could be in the form of healthcare premier discounts for adopting well behaviors coming from health risk assessments, kind of the safe way model if you will. It is about creating an environment that encourages healthy choices.

We see a lot of companies like the Cleveland clinic and others who are reforming their vending machines, their cafeterias, are taking steps to enforce an environment that directly nudges people toward better choices and its also something people need to do within their own homes.

Reformulation; there’s a need for nutrition and manual label and all that kind of good stuff. Its about eliminating barriers for participation, particularly in the dimensions of cost that can come in the form of subsidies and reimbursement models, which are beginning to take hold, as well as increasing convenience, this is why 12% of Weight Watchers attendances in the US are now happening on the worksite.

And finally it’s about having the right tools to help people through what is an inherently difficult process of establishing these new behaviors. And if you therefore think about what’s in the obesity tool kit, consider just a basic approach to comparative effectiveness. So what you really want in your tool kit is something that is based on a methodology that leads to the possibility of sustained change. You want something that’s clinically demonstrated in terms of efficacy, you want something that is cost effective and very significantly you want something that is scalable and capable of having a population impact because otherwise who cares.

If you think about therefore what Weight Watchers is, we believe that we have the ideal approach for addressing this issue. Specifically, we have a program itself, a nutrition and activity program, which is based on the cumulative impact of all of the science and research and there’s hordes of it that is done in terms of how we think about food choices and you know stimulating people in the activity.

We are fundamentally at our core in education, behavior change, company, we do what we do with the corner stone of group support and we are in many respects unique in the way we approach it. We are not email delivery business for this very reason, because what do you do after you stop eating those free package meals, you end up going back to your old life, you re-gain the weight and you haven’t learnt anything in the process. We approach this purely from the perspective of behavior model.

Clinically effective, 69 publications over the past 15 years; everyday I thank the good Lord that I have enough common sense to support my Chief Science Officer when she keeps coming back with her budget and asking for more clinical studies, because as you are going to see in a second, its paying big dividends for us.

And then finally significant competitive advantages: Let me specific about this, is that every Weight Watchers meeting is led by a person who is a successful member. The reason that is important is that facilitating a group support experience requires that the facilitator have a high degree of empathy in understanding and if you’ve never had a weight problem, you don’t understand what it is.

What’s another model that we can think about like this, AA; highly effective, really good at what they do. We don’t tend to compare ourselves to them in marketing materials for a verity of different reasons, but specifically if you look at underlying, what’s happening from a behavior modification point of view and why group support works, its sometimes a useful analog to think off and its very similar in terms of underlying philosophies that we apply in our means business.

Lastly as I talked about, a little bit more in a second, we are very inexpensive compared to other treatment approaches. How do we do it? We do it through a combination of face-to-face offering, which is our group support meetings. We also do it now with an online only version of Weight Watchers, which is a wider level of support if you will. It sort of helps people follow the points program. It also carriers a lower price point. They service different market segments based on sort of how you are wired, where you are, the relative degree of your weight issue.

But if you actually look at what’s happening for the most part is, close to 80% of the people going to meeting are getting something called monthly pass, which also gives them access to all those online tools, including WebApp, iPhone app, android, iPad, etc. It is our best offering and in fact, we did a clinical trail where we demonstrated for ourselves, that was published in an abstract, that people that do both, meetings and electronic tools, we saw a 50% lift in efficacy versus meetings by themselves; and so this is an important, this is kind of -- it’s a window end to how we think about what we do in terms of every year finding ways to improve efficacy.

In terms of demonstrating effectiveness, this has been an unbelievably great year for Weight Watchers. We had a three years in the making, very large scale RCT that was published in The Lancet this past fall, which was not an easy thing to do. It was lead out of MRC, out of Cambridge University.

Specifically what this trial showed was that, sample size 800, UK, Australia, Germany, patient sees doctor, patient is obese, doctor randomly refers patient either to Weight Watchers out in the wild, not laboratory version, but just Weight Watchers or they were directed to take an obesity clinic delivered through that doctors office. At the end of the year, 12 months, the Weight Watchers arm had lost two times more weight and was tree times more likely to get someone to a 10% weight loss than the doctor led arm.

Almost as important or perhaps more important is the fact that the completed rate on the study was about 60%, which in behavior modification land was actually quite good at the end of 12 months. 60% completed; of those 35% got to a 10% weight loss, in our world that is knocking the ball out of the park. What’s happening? The doctor is creating a sense of urgency as only they can and then they are able to refer Weight Watchers as the weekly delivery system of education and behavior modification, is an unbelievably compelling partnership model.

We have an investigator who did that study, also did an audit of 30,000 people who had been referred through the NHS led program, had been referred by doctors to Weight Watchers, so an audit of 30,000 people. What they found was comparable weight losses to what they saw in the RCT, which was good. More importantly, there was incredibly low variability of outcomes.

So what was happening in a meeting at Manchester was basically the same as something that was happening in London. That’s not what the investigator expected, she thought it would vary very much by who was delivering the meeting, but what she realized was that, they are delivering exactly the same food and activity program; it’s the same weekly curriculum. The DNA of these folks as a successful member is exactly the same and they all get the same training, which means we are able to deliver incredibly consistent outcomes and in this particular country, the UK, we are doing 6,500 meetings very single week.

If you look at the US, that’s closer to 20,000 meetings every single week. We are fully scaled up in doing this already. You don’t have to invent Weight Watchers, it already exists. That’s outcome and consistency of outcome in terms of cost effectiveness if you consider it on a cost for quality basis, compared to bariatric surgery, medication, one-on-one support by physiotherapists or psychotherapist.

This is Weight Watchers. You will see that we are considerably more cost effective per quality adjusted life here, than any other treatment modality, which means if you go back to this competitive effectiveness model, highly effective, fully scaled up, highly cost effective, which is heavily dependant on the fact that we have a group support model.

And to that end, the USPSTF updated their guidance on obesity, in which they said that multi-component intensive behavioral therapy was now greater to B, which is great, and by the way, if your wondering what Weight Watchers does, we do community based multi-component intensive behavioral therapy. Again, this does imply well are marketing land, but that is actually the clinical definition of what Weight Watchers does.

The broader context for this is that over time, we see ourselves being incorporated into the healthcare ecosystems, specifically Weight Watchers partnering with payers and doctors to deliver high quality outcomes cost effectively. And specifically right now, right in front of this opportunity, the one that’s most directly in front of us, we believe is going to be with the self insured employer channel.

CEOs get it. They are tired of watching their healthcare premiums go up 8% a year. They also know that obesity is correlated with absenteeism, lower presenteeism, lower engagement. So compared to all the other benefits, what we are finding is an unbelievably receptive audience. We think over time we are going to be able to work with payers to get them engaged with partners with us in terms of addressing this and ultimately we think there is going to be an opportunity as well working with CMS.

Some specific examples, we’ve been winning a lot of accounts recently that we’ve been bringing in. Some recent examples include American Express, who’s providing a full subsidy for Weight Watchers and a 50% subsidy for dependence. You know New York stock exchange, Cleveland Clinic has been a long time accountfor us over the past three or four years. The Cleveland Clinic through their program with Weight Watchers curves in a few others. Their employees have lost 250,000 pounds since the year 2005; Oh! By the way, their healthcare premiums are not going up this year; so this can be done.

I think for us therefore the key is, what we found is that it is important to have some sort of meaningful, generally 50% or better reimbursement or subsidy by the employer. Our strategy is one of building up a sales organization to address this market, as well as making sure that we can provide the right kind of data feedback reporting, everything else to make this a reality.

If that’s kind of the healthcare B2B perspective in terms of our strategy going forward, we are continuing to do lots of other things that we normally do, such as innovating. We launched a brand new platform last year called PointsPlus, which directs people towards foods that have better satiety, better nutrition characteristics, it is a better forward functioning food and activity plan and we’ve just made it better this year by making it more personalized, creating new ways of helping stay on track, helping people get off to a better start, and then finally continuing to make the Weight Watchers offer more convenient.

I talked about our online offering, which has become tremendously important for us. We spend about $25 million a year on software development of consumer phase and behavior mode applications.

Little examples include barcode-scanning application we just launched last month. You can walk up to any food in the grocery store, scan it with your iPhone and it tells you how many points it is and then you can click add it to your tracker; people love it. It’s a great example of how we actually do these applications to make the program more fun, more engaged and more convenient. We are going to continue throwing down serious investment behind this and continue to making it a major priority for us.

We are fully revamping our entire retail infrastructure; 700 stores in the Untied States. At the end of this year that we just finished, we’re roughly 50% done. What this looks like on the ground, if any of you are from the Boston area. This is Winter Street. We are -- where are we? Yes, that symbol is good. We are up there. This is an electronic store that among other things sells media intended for adult conception, dingy rooms and horrible stairs, we had to go up.

We replaced Winter Street with Summer Street. There we are at ground floor, a big bright signage, attractive new store layouts; by the way, we are paying less rent in the new location than we were in the weird location. It helps to have a really great new real-estate department that can make this a reality. So we’ll be pretty much done with this at the end of 2012.

When we’ve done this, typically what we’ve seen is a lift of 15% to 20% in enrolments in the areas where we’ve been completing this retail transformation. We are continuing to press down hard on marketing. Jennifer Hudson continues to do great things for us.

More recently many of you may have noticed that we have our first ever male sports person in the form of Charles Barkley, who stills needs to figure out that sometimes you have to be careful about what you say, because the mic may be hot. But nonetheless it’s fine. Actually, if you listen to what he said, he was actually saying, I can’t believe I’m getting paid to loose weight. This is so easy. It’s a scam. We are happy to support his scam. But this is important, because this is really the first time in its 50-year history, close to 50-year history that Weight Watchers has really opened up the doors for men.

I would also tell you frankly, go back, look at 2003; Weight Watchers was a brand for middle-aged women. Now we are doing a great job bringing in younger woman. They love the online product. We are bringing in men. We have significantly expanded our population and our reach.

And so wrapping up, what you have is a business that is, all the wonderful economics that goes with our meetings business, an unbelievably great online business as we talked about in our last Q3 call that we were forecasting for 2011, our internet business by itself that it would be delivering roughly $400 million in revenue and $200 million in OI, and that is, if you look at the first three quarters that’s revenue, give or take up 65%, 70% of our prior year and that’s after lapping a good year.

If you can sort of see the impact of that, is that you know the last three quarters -- the first three quarters 2011, you know nice lift in improvement in terms of paid weeks volume for our meetings, and then you can see the online business just taking off. So 2011, one way to think about it is that we’ve never had a time in our lives when we would have more people engaged doing and living with Weight Watchers.

And again, this is a business that delivers terrific cash flow. We return that to shareholders in the form of dividends, stock buybacks. We also opportunistically look to acquire franchises, because those are higher accretive acquisitions and that’s going to continue being a significant part of our cash flow formula going forward. But as you can see if you look at the Q3 LTM, 2011 for the first three quarters obviously got off to a terrific start from a financial perspective and that is it. Thank you.

Question-and-Answer Session

[No Q&A session for this event]

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